Eileen Appelbaum

The comment period is now open for new rules proposed by the Obama administration that require financial professionals to put workers' interests ahead of their own when they make recommendations for retirement savings. Modernizing the rules to take account of the growth of worker-directed retirement savings plans such as 401(k) plans and IRAs is long overdue.

Loopholes in the current regulations let plan advisers and brokers consider what they will earn in higher fees and commissions when providing financial advice to workers about how to invest their retirement savings. This is especially true when workers roll over funds from a 401(k) or similar account to an IRA—making workers vulnerable to getting bad advice just at the point at when they begin to manage their retirement savings themselves. The Labor Department, which oversees these types of retirement savings accounts, is concerned that workers may not end up in the most advantageous investments and may pay excessive fees that cut into their savings, a double whammy that the White House estimates costs employees $17 billion annually.

The traditional employer-sponsored defined benefit pension plans that once provided retirement income to millions of workers appear headed for extinction. Money is flowing out of them as baby boomers retire, and there are few to no new companies making these plans available to employees. Instead, an increasing share of retirement savings is in 401(k) or similar plans or in IRAs. Together, these so-called "defined contribution retirement saving plans" now account for about $11 trillion of the $24 trillion in retirement assets in the U.S. This has not gone unnoticed by alternative investment funds—hedge funds and private equity funds—which are interested in getting in on the action. As BNY Mellon's Pershing Prime Services put it in a recent piece on the future of alternative investment funds, "The retirement market may be the next frontier. It represents a large and growing pool of assets driven by the importance of retirement saving across multiple investment segments." The opportunity, as Pershing sees it, is for alternative investment funds to create products suitable for packaging in diversified investment portfolios that independent and registered financial advisors can promote to 401(k) plans and to individuals with IRAs. These would presumably be more liquid than commitments made to these funds by their limited partners and could be embedded in so-called target date funds that are already popular with 401(k) plan investors. Instead of choosing individual investments and creating a portfolio, workers are able to choose a single fund that has a diversified portfolio of investments embedded in it. The goal is to have more risky alternative investment products included in such funds. Alternative investment products may be new and unfamiliar to workers saving for retirement now, but Pershing anticipates that over time they will become as familiar and pervasive in packaged investment portfolios as mutual funds.

Hedge funds and pension funds claim that including alternative investments in 401(k)s and IRAs will provide individuals with higher returns and higher income in their retirement years without much additional risk and, in addition, will provide a hedge against losses when the stock market turns down. Despite the hype surrounding these alternative investment funds, this is unlikely to be true. The California state public employees' pension fund (CalPERS), the largest pension fund in the nation with $300 billion in assets, recently announced that it is withdrawing all of its investments in hedge funds and reducing its target allocation to private equity because of the disappointing returns and high fees associated with these investments as well as their failure to protect against losses when the stock market declined. Workers managing their own individual retirement savings accounts can hardly expect to do better.

Rollovers of 401(k)-type plans to IRAs now exceed well over $300 billion a year and are expected to continue increasing to more than $500 billion by 2019. Without tightening the rules for brokers and closing the loophole that allows them to put their personal gain above the interests of individuals when making recommendations for investing in these rollover funds, workers may get saddled with higher fees and riskier investments.

For most workers, the decision of what to do with their retirement nest egg when they roll over their 401(k) to an IRA is the biggest investment decision they will make. Under the new rules, brokers could still make recommendations to clients about where to invest their rollover funds. The difference is that under the Labor Department's proposed rules, they would have to promise to look out for the best interests of the individuals they advise.

Working families have much to celebrate this Mother’s Day as city councils and state legislatures across the country take up President Obama’s challenge to provide parents with paid time off so “they can afford to be there when their families need them most.” California, New Jersey, and Rhode Island now provide paid maternity and paid family leave so parents can bond with a newborn or adopted child. Nineteen cities plus Connecticut, Massachusetts and California now allow workers to earn a few days of paid sick leave. Still, much remains to be done.

Employers understand that paid leave helps their companies with recruitment and retention, improves productivity, and reduces costly turnover. Indeed, employer-provided paid leaves are quite common for workers in the top quarter of the earnings distribution: 84 percent have paid sick days and 91 percent have paid vacation. Fewer than a quarter, however, get paid family leave, though most managers and professionals can cobble together at least some paid-time off for the birth or adoption of a child.

Among workers in the bottom quarter of the earnings distribution, though, 70 percent do not have even one paid sick days, barely half (49 percent) get paid vacation, and just 5 percent get paid family leave. Across the earnings distribution, 43 million private sector workers are without any paid sick days. These are the workers the President noted who “can’t even get a paid day off to give birth to their child.”

The Family and Medical Insurance Leave (FAMILY) Act would go a long way toward remedying this inequity. With only a small contribution from employers and employees, the FAMILY Act would create a national insurance program to provide partial wage replacement for workers for up to 12 weeks due to for pregnancy, child birth or their own serious health problem; to care for a new child; to cope with the serious health problem of a family member; or for specific military caregiving. Because the costs are spread out over the entire workforce, the program would require only a small contribution from employers and employees.

The FAMILY Act would be a boon for businesses as well, including those that employ low-wage workers. In our study of California’s paid family leave program, Professor Ruth Milkman and I found that paid family leave reduced turnover of workers in lower paid jobs. And, as we found in that study, worker turnover in those jobs is far more costly than most employers realize. There are problems with the way in which many employers calculate turnover costs. In one particularly memorable case, the top corporate human resource manager of a national retail chain with high turnover reported very low costs to replace sales staff that quit. It turned out, however, that the HR manager had failed to include a major expense: the salaries paid to the company’s staff of college-educated recruiters employed to replace workers that quit. We also found that employers often fail to account for the time it takes newly hired workers to get up-to-speed. Workers are paid full salary, but may be functioning at less than top performance while they learn the ropes.

That experience inspired us—with colleagues at the Center for Law and Social Policy—to create a turnover calculator that employers and HR managers can use to calculate their own turnover costs. The CEPR-CLASP turnover calculator makes it possible to vary wages, weekly hours, and recruiting and hiring costs to calculate the cost of turnover for different categories of workers. Employers can use the actual wages paid and hours worked by their employees as well as time spent screening, selecting and interviewing job candidates, checking references and doing background checks; time spent in orientation; and the time it takes for workers to become proficient in their jobs.

To illustrate the cost of turnover, we used $13.22 an hour for hourly paid employees and $47.46 an hour for salaried employees. Plugging these wages into the turnover calculator and making reasonable estimates for the time spent hiring an hourly-paid worker yields a turnover cost for this worker of $4,299. Costs multiply rapidly if turnover of lower-paid workers is high, rising to $42,991 if 10 workers quit during the course of a year. The turnover cost if a salaried (exempt) employee quits in this example is $26,624.

A federal paid family and medical leave program that guarantees paid maternity leave and paid time to bond with a newborn or adopted child would be a great Mother’s Day present to America’s working families—and a gift to employers as well.

Last year, the country's smallest state took a step towards helping the United States address a hole in its workplace policies: lack of paid family leave. Since January 2014, employees in Rhode Island have been able to take up to four weeks of paid leave to bond with a newborn, newly adopted, or foster child, or to care for an ill loved one through the state's Temporary Caregiver Insurance. TCI is fully funded by workers and applies to all employees regardless of the size of their workplace. Employers cannot fire or retaliate against employees who take the time off.

The United States lags far behind other advanced industrial nations in providing paid leave to new mothers and fathers. The federal Family and Medical Leave Act, or FMLA, offers 12 weeks of unpaid leave to new parents employed by certain kinds of businesses. Even among those covered, most can't afford unpaid time off. In the more than 20 years since passage of the FMLA, only a tiny fraction of new fathers have used it. That's because going without a father's income — for even a few weeks — is a financial hardship for most families. Moreover, being a good father has traditionally meant providing for your family by working.

By the time FMLA became federal law in 1993, Massachusetts, Connecticut, and Rhode Island, along with other states, already had state laws guaranteeing unpaid leave. Now Rhode Island, California, and New Jersey have broken new ground with paid family leave laws, and legislatures in Massachusetts, New York, Connecticut, Colorado, Minnesota, Washington, and Hawaii are all considering similar programs. Steps in the right direction are also occurring on the municipal level, with leadership from mayors and city councilors — like those in Boston — who are supporting paid parental leave for municipal employees. In fact, Massachusetts Attorney General Maura Healey just said she plans to offer six weeks of paid parental leave to her employees.

It is not surprising that states and municipalities are taking action. Research shows paternity leave is not just good for fathers; it’s good for all of us. Studies find that fathers who take longer leaves have more involvement in the lives of their children, have more confidence as parents, and spend more hours with their children during workdays. Moreover, research has shown that longer paid paternity leave increases fathers’ involvement in the lives of their children and the time they spend caring for them. Greater gender equity in the home enhances mothers’ attachment to the workforce and success on the job.

While paid leave has increased the number of men in California and New Jersey taking time to care for a new baby, first-year data from Rhode Island are particularly encouraging. Paid, job-protected time off appears to encourage more men to take paternity leave. Nationally, just one man took leave following the birth of a child for every nine women who took such leave. By contrast, in Rhode Island, 901 men and 1,946 women went out on bonding leave in 2014 – a ratio of one father for every two mothers who took leave.

The burden on employers is less than you might think. Only a small fraction of the workforce has a baby in any given year. In Rhode Island, just 0.7 percent of the state’s private sector workforce took a bonding leave in 2014. Indeed, overall TCI usage for all purposes was just 0.92 percent of the workforce.

Barely any employers have had even one employee take leave. According to unpublished data from Rhode Island’s Department of Labor and Training, just 5 percent of the state’s 32,200 private sector employers had an employee who took a caregiver leave for any reason in 2014. A small number of larger employers had multiple caregiving leaves, but even in these cases, they were taken only by between 1 and 4 percent of the workforce.

In addition, research shows paid family leave reduces employee turnover, which provides a cost savings to employers compared with the expense of recruiting, training, and getting a new employee up to speed on a job.

As the state senator who championed Rhode Island’s Temporary Caregiver Insurance and an economist who studies the impact of paid leave, we know that the insurance programs in California, New Jersey, and Rhode Island help families and our overall economy. Nearly 40 million people live in these three states, yet millions more across our country would benefit from paid family leave. Ensuring that workers who need to care for their loved ones can take time without losing their income is a basic guarantee that everyone deserves.

It has become harder and harder for workers to tell who their employer is. Companies have engaged in vertical dis-integration as franchised businesses have become increasingly prominent and contracting out of operations by traditional firms has increased. The expanded reach of private equity funds as owners of Main Street companies has also undermined the traditional employment relationship.

Editor's Note:Eileen Appelbaum contributes to The Huffington Post on occasion. This article is the latest. For more from Aileen Appelbaum visit her HP page here.

In both cases, a complex web of legally distinct entities has been put in place whose aim is to separate a business's actual owners and managers from responsibility for the effects of their decisions on workers.

Recent developments, however, suggest that the interpretation of laws meant to assure that workers are fairly paid and their pensions are safeguarded is finally catching up with these new realities.

In a landmark decision on August 27, the Ninth U.S. Circuit Court of Appeals in San Francisco overturned lower court decisions and ruled that FedEx drivers in California are employees and not, as the company maintained, independent contractors. The Court found that FedEx's labeling of the drivers as "independent contractors" in its Operating Agreement did not make them so.

The court noted that the drivers are required to wear FedEx uniforms, drive vehicles that meet FedEx's standards, and dress according to FedEx's appearance code. FedEx tells its drivers what packages to deliver, on what days, and at what times. The Court agreed with the FedEx drivers that they are indeed employees. The decision means that 2,300 past and present FedEx drivers in California are entitled to overtime pay and to recoup work expenses for their uniforms and trucks.

The FedEx decision follows soon after another landmark decision -- this one affecting employees at McDonald's franchised restaurants. In July, in a case involving charges of unfair labor practices, legal counsel for the National Labor Relations Board (NLRB) held that McDonald's Corporation has joint responsibility with its franchised restaurant owners for how employees are treated.

In the franchising model, which has become increasingly prevalent in fast food and retail operations, local franchise owners are nominally responsible for the restaurant's operations, pay fees to a corporation to use its brand, and must run the operation in conformance with the corporation's guidelines. Questions have been raised about just how independent franchise owners are. The NLRB ruling holds that the parent corporation and the franchise owner are jointly responsible for working conditions and violations of labor law in the franchised establishments, with wide implications for workers at franchised businesses.

McDonald's defense is that its role is 'hands-off' when it comes to the operations of its franchised restaurants. This is the claim that private equity owners of companies also invoke to argue that they are investors, not managers, and are not responsible for assuring that labor and employment laws are adhered to. In our new book, "Private Equity at Work: When Wall Street Manages Main Street ," Rosemary Batt and I demonstrate that a company's private equity owners make decisions that directly affect the jobs, pay and working conditions of its employees. This is not hands-off management. Indeed, proponents of the private equity business model themselves are quick to point out that private equity creates value precisely through the active management of the companies it owns.

Several recent rulings spell out what this means for private equity. In the case of the law governing pension liabilities, the United States Court of Appeals for the First Circuit issued a ruling in July 2013 that one of PE firm Sun Capital's funds was not merely a passive investor but was actively involved in the operations of a portfolio company that went bankrupt and may be responsible for its unfunded pension plan and other liabilities.

Private equity firms have also found themselves liable for employees' back pay and benefits under the federal Worker Adjustment and Retraining Notification Act (WARN Act) which requires employers with 100 or more employees to provide 60 days advance notice to workers in the event of a plant closing or mass layoff.

The Delaware District Court has allowed WARN lawsuits against private equity firms MatlinPatterson Global Advisers and Navigation Capital Partners (NCP) to go forward in cases where a portfolio company failed to provide the required advance notice here and here. A similar ruling from the Court of Appeals for the Second Circuit held that PE firm York Capital and its Bay Harbour Management portfolio company were a single employer for purposes of the WARN Act.

Finally, the NLRB appears ready to classify PE firms as joint employers with their portfolio companies for purposes of the National Labor Relations Act (Private Funds Management Monday Monitor, August 25, 2014). This could make the PE firm liable for unfair labor practices, for failure to adhere to a collective bargaining contract, and for contributions to employees' health plans.

These are early days, and the various rulings highlighted here are likely to be appealed. But this new willingness of courts and agencies to reconsider what it means to be an employer in today's multi-faceted employment relationships is a welcome development for workers who would otherwise lack meaningful recourse when labor, employment or pension laws are violated.